Multimedia: Have Less, Pay More

High fees and other banking practices have left millions without access to traditional banking services, but the alternatives create new hurdles.

The lived experience of poverty often involves not only a lack of money, but also a lack of available social and financial resources necessary to improve one’s economic circumstances. This week at Heron we watched a documentary called "Spent: Looking for Change" that showed what this looked like for Americans that hit a “bump in the road” and found themselves in difficult financial straits.

The film premiered online on June 4th, 2014 and has so far reached 8 million views. It introduces the real life stories of four American households to reveal what happens when the millions of Americans who do not have a bank account or access to other traditional financial services must turn to costly alternatives.

CFSI’s Market Sizing Report says that every year, Americans spend $89 billion on “fees and interest” for using alternative financial services, such as pawn shops, payday loans, and check cashing services. Here is a related excerpt from the video:

Narrator: If the option [from payday loan] is either paying off the loan or paying to extend it, Americans on the edge don’t have a choice. Week after week, the account comes due, but for some, the fee is more affordable than paying off the principal, so the loan is rolled over. It is how, over the course of time, a short-term loan can become a long-term crisis.

Melissa: If you’re in a situation where you have to get a payday loan, you don’t have the money. You don’t. It’s two weeks to payday, and I’ve got $8. And I got to make that stretch. It was a routine. I’d go and get the loan, pay whatever bill it is, and now in two weeks, I owe them the money again. We have yet to be able to pay that off in full, and so over the course of time, we’ve spent about $1,700 [in payments for an original loan of $450].

[I]t’s awfully expensive to be poor. As Barbara Ehrenreich wrote in her book Nickel and Dimed, many entry-level jobs pay next to nothing with unpredictable schedules. This makes savings, second jobs, affordable loans, and child care all but impossible to arrange. Inescapable poverty changes the way we think about money and time, as short-term concerns glare so blindly that it’s almost impossible to make long-term plans.

It’s expensive to be poor, Ehrenreich says. It’s true. In fact, when you don’t have enough money, money itself is expensive.

Sponsored by American Express, this film provoked vigorous online discussion on poverty and financial services. We also encourage you to share with us your comments and thoughts on the issue.